Credit Clinic Your Credit Report – Part 1

This is the first in a new series where Experian’s credit expert Joe Green will be answering your questions about all things credit. In this post, Joe explains what your credit report is and how it could affect your mortgage application.

What is my credit report?

Your credit report contains information about how well you have managed any credit accounts you have held, such as mortgages, credit cards, overdrafts, mobile phone contracts and even some utilities, over the last six years.

Your credit report will also contain public information, such as your address, if you are registered on the Electoral Roll, or if you have any County Court Judgements (known as CCJs), bankruptcies or IVA’s in your name.

When you make any application for credit, or for a service which is provided on credit, the company will ask your permission to come to a credit reference agency, such as Experian, to do a credit check on you, so that they can understand how you have managed credit in the past.

For most people, the information on their credit report is positive and supports them getting accepted for credit and getting the best rates. It’s very important that you check your credit report regularly to ensure everything is accurate and up to date – before you make any credit applications.

What is credit scoring?

When you make a credit application, the company you apply to will look at three sources of information to help ‘score’ your application. The lender will consider information from your application, such as your salary and employment status, together with any customer records they have with you already. They will then seek your permission to review your credit report to see how you have repaid any credit lent to you in the past. All of this information is combined with their lending policy rules to give your application a score. It is this score that will help a lender decide if they will accept your application or not.

You do not have a single credit score, as each lender will score your application slightly differently depending on their individual lending criteria. At Experian, we also offer people an Experian Credit Score, which is a guide to help you understand how the information in your credit report is likely to be viewed by a lender and will also help anyone working to improve the picture their credit report paints of them.

How can my credit score affect my mortgage application?

Lenders are simply looking to confirm that you are who you say you are, that you can afford to pay back the money they lend to you and that you are likely to meet the agreed repayments, both now, and in the future.
As mortgages are for significant amounts, they will often have stricter lender criteria applied to them, so it’s important that you’re constantly building up a positive credit history before making your application.

What lenders look for:

Missed/late payments or defaulted accounts – a sign that you might not be reliable at meeting agreed repayments

How much of your total available credit you are using – so, avoid maxing out your credit cards, as it may imply you need credit to survive

If you have made other credit applications recently. Lenders can see if you have applied and been accepted for other credit products. Too many applications could cause concern that you are under financial pressure.

Mortgage affordability rules mean lenders are required to ensure you can afford repayments in the future – if, for example, the interest rates rise – so it’s good to pay debts down in the run up to a mortgage application.

If you are thinking of applying for a mortgage, spending time understanding what lenders will be looking for and how you can improve the picture your credit report paints of your financial situation can really pay dividends.